My Year End Financial Performance Review

January 5, 2009 by  
Filed under Financial Planning, Investing

Mr. ToughMoneyLove has spent a good part of the past five months being critical of others who use poor judgment in matters of personal finance.  Many of my targets have been politicians, Wall Street investment bankers, and disciples of the almighty credit score.  Depending on your own attitude about these subjects, I may come across as an arrogant know-it-all.  There is no question that I infuse my writing with heavy doses of skepticism and sarcasm.  However, none of my targets have been you personally.  When I write, no offense is intended to any of you and, I hope, none taken.  (There have been a few obnoxious comments left but I use the ultimate weapon on those folks:  I delete their comment.) 

Because I have offered up a number of opinions about what everyone else should be doing at the beginning of 2009, I think it is only fair that I do some of those things myself.  In particular, I wanted to generate an accurate picture of our current net worth so that I could compare it to our net worth at the end of 2007.  To do this, I needed to estimate the present market values of our real estate (permanent and vacation homes.)  I obtained this data online then entered it into Quicken, which is what I use to keep track of all of our finances.

I then took the painful step of running an analysis of the 2008 performance of all of our investments.  To be honest, until the market started its dramatic fall in September, I did a portfolio analysis at least once per week.  Since that time, I have looked at all of our investments individually (and made a few moves that I will talk about in a minute) but I have put off until now looking at the yearly performance of our entire portfolio.  Frankly, I knew it was bad but I didn’t really want to know how bad.  Now I know.  We actually did better than I anticipated.   Take a look at the data.  Now is your chance to critique me.

Here is a summary our 2008 financial performance:

Net Worth:  -3.9%

Investment Portfolio:  -21.8%

It is sad that I would be content with a 21.8% yearly drop in the value of our investments but considering that the Dow fell 34.3% during 2008, I’m somewhat encouraged that our asset allocation allowed our overall portfolio to outperform the DJIA.  

Our biggest loser was in our emerging markets ETF (VWO) which was down 51%.  So much for the theory that emerging markets are non-correlated with the Dow! 

A nice performer was our international treasury bond ETF (BWO) which was up 2.27% for the year.  That non-correlation did come through as planned, probably because of currency fluctuations since this fund is non-hedged.  I have to credit Scott Burns for this suggestion and for creating his Ten-Speed portfolio which is what we use in our self-managed 401(k) account.

We made several moves during 2008 which helped support the performance of our overall portfolio:

First, when I became concerned about prospects for inflation at the beginning of 2008, I tripled our allocation in an inflation protected securities fund (VIPSX).  We have not yet experienced the ravages of inflation but this fund (which holds TIPS) performed relatively well (-6.65%) because of the rush to safety by other investors.

Second, I sold all of our shares of Citi early in 2008 when it became apparent that it was going to cut its dividend.  That saved us from a lot of future market devaluation.  We only own a handful of individual stocks and most of those were purchased for their high dividend yields.  I also sold our Bank of America stock but I did that at the end of 2008 to harvest a tax loss.   I made the mistake of holding this stock too long. 

Third, we accumulated 401(k) contributions in a stable value fund (+3.71%) throughout 2008, in anticipation of using that money to rebalance our portfolio at the end of 2008.  When Obama was elected and announced plans for tax hikes and massive stimulus spending, I made the decision to postpone that rebalancing until I see what Congress actually does when he takes office.  Some experts would say to go ahead and put this money into equities at sale prices.  This baby boomer has decided to watch and study for a little bit longer.  Everything – and I mean everything – has to be looked at differently in this new era of investing.

Fourth, a significant piece of our investment portfolio is in I-bonds which we bought from 2001-2007.  All of our investments are intended for use in retirement.  The I-bonds (+4.98%) are part of our retirement emergency fund that we will use as a buffer so that we will not have to sell any other investments during a market downturn.

I am even more encouraged that our net worth only fell 3.9% during 2008.  I attibute that primarily to two factors.  First, our real estate holdings held their own.  Because of their somewhat unique and favorable locations, their estimated market values did not measurably decrease (according to Zillow and HomeGain) during 2008.  Second, during 2008 we made a concerted effort to accumulate cash so that we could pay-off at least one of our mortgages.  That was going to happen last month but to be honest, things were so hectic I didn’t make it happen.  This will be the month.

So there you have it, the Mr. ToughMoneyLove year end review.  I am looking forward to a better 2009 for all us.  And starting tomorrow, a return to our regularly scheduled programming.

How was your 2009?  Have you dared to look?

The Tough Money Love blog is now five months old.  I want to sincerely thank all of you for reading and commenting here.  It means so much to have you enjoy and contribute to the views being expressed.

I also want to thank all my fellow personal finance bloggers for teaching me the ropes and supporting me as I try to learn what this is all about.   The veteran bloggers at Smart Spending, The Simple Dollar, Consumerism Commentary, and Free Money Finance were particularly nice in accepting guest posts from me and/or sending a lot of new traffic my way.

Photo credit:  Steve Woods

Feed Mr. ToughMoneyLove

FREE UPDATES: If you enjoyed this, please subscribe to receive the newest hard truth from Mr. ToughMoneyLove automatically by RSS feed (what is RSS?) or by spam-free Email.

  • Banner


2 Responses to “My Year End Financial Performance Review”
  1. Curt says:

    It’s good to see your investments are only down 21% verses most pf bloggers of 45%. Net worth down 3.9% isn’t that bad either, but I wouldn’t trust Zillow to price your real estate. 08 was a tough year and 09 maybe even tougher. The next question is what are you going to do in 09?

  2. My Journey says:

    Nice work Counselor,

    I can’t wait until I pay off all the consumer debt so I can move towards the vacation homes!

Speak Your Mind

Please leave a comment and tell us your version of the hard truth...

You must be logged in to post a comment.